OTTAWA - Canada's economy performed relatively well last year, but not enough to displace Germany as the top country in the Group of Seven big industrial nations, the Bank of Montreal says.

The chartered bank's annual report card for economic performance puts Canada slightly ahead of where it stood in 2010 cumulatively on five benchmarks, including unemployment and government deficits.

But the combined score of 81.6 is well back of Germany's 89.2 out of a maximum 100.

The scorecard suggests that the Harper government's contention that Canada leads the G7 in economic performance is somewhat of an exaggeration.

While Canada scores higher than the G7 average, exporting powerhouse Germany tops Canada in four of five major categories — jobless rate, inflation, government fiscal health and the current account balance with the rest of the world.

In the fifth category — credit rating — the two countries are tied with the top AAA grade.

"No. 2 is OK," said economist Benjamin Reitzes, who compiled the report. "We've been consistently in the upper echelons in the G7."

Reitzes noted that Germany has been more aggressive than Canada in reigning in government deficits. The European country has a deficit of only 1.2 per cent of gross domestic product, while Canada's combined federal-provincial shortfall is five per cent the size of the economy.

The other area in which Germany does substantially better is trade. The collapse of exports since the recession leaves Canada with a current account deficit of about three per cent of GDP, while Germany still enjoys a massive surplus.

Surprisingly, the U.S. is second last in the G7, mostly due to its high unemployment rate and budgetary deficit valued at 10 per cent of GDP, the worst in the group. Not such a surprise is that Italy, which is in the midst of a sovereign debt crisis, trails the group.

Canada averaged 7.5 per cent unemployment in 2011, and inflation was 2.9 per cent overall.

Reitzes said there's a chance Canada could regain top spot next year if expectations for growth are borne out.

In a separate report released Wednesday, the Canadian Chamber of Commerce said Canada's economy is likely to continue to experience positive, if moderate, growth in 2012. It predicts output will grow by two per cent next year, followed by a 2.6 per cent expansion in 2013 — both numbers similar to the consensus reading of economists.

By comparison, Germany's economy is forecast to barely register any growth at 0.6 per cent next year.

The BMO report shows that Canada is doing well in relative — if not in absolute terms. It means that in a contest of struggling nations, Canada's problems are milder. On average, industrialized nations overall had a worst 2011 than 2010.

"Relative to the world we're in a decent spot, but this is the second lowest score since 1994, so our economy has performed better," Reitzes said.

The Chamber of Commerce outlook is that the trend of weak growth will continue in 2012, with Canada outperforming most industrialized countries.

Most of Canada's engines of growth have slowed, the business organization said, including consumer spending, housing activity, government spending, and exports, which while rising, remain below pre-slump levels. The bright spot in the grey picture is business investment.

The chamber pointed out that with Europe still a question mark, the outlook for Canada is subject to a downside shock if the continent fails to contain its sovereign debt problems. But Canada's domestic economy is not what it once was either, it added.

"Employment growth has stalled since mid-year, a sign employers are more cautious in hiring new workers given the uncertainty in the economic environment," the chamber said.

"Going forward, high household debt levels are likely to keep growth in spending relatively modest. Finally, there is not much pent up demand in Canada, especially for big ticket items."

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5 Economic Landmines That Could Blow Up On Canada

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Canada's household debt burden climbed to yet another record high in the third-quarter, prompting Bank of Canada Governor Mark Carney to call it "the greatest risk to the domestic economy." At 150.8, Canada's debt-to-income ratio is now higher than in the U.S. or the U.K. Meanwhile, household net worth fell, which, as many observers have warned, has made Canadians more vulnerable to adverse economic shocks.

Though BMO's Doug Porter maintains that low interest rates and modest job growth should prevent household debt issue from becoming "a clear and present danger to the outlook in the year ahead," he predicts that the debt burden is likely to increase.
Unlike in the U.S., Canada's consumer recession was "very mild," leaving scant room for growth in consumer spending, he says.
"At best, we see consumer spending growing in line with income next year," he said. "We've actually pegged it a little bit below income growth next year ... at less than two per cent in 2012." (FREDERIC J. BROWN/AFP/Getty Images)

When TD cut its 2012 outlook for the Canadian economy earlier this week to 1.7 per cent, the bank cited a deepening fiscal crisis in the eurozone as one of the primary factors. More bearish than BMO, which on Thursday held its expectation for Canada's GDP growth next year at two per cent, TD is forecasting "a deterioration of financial conditions and a significant European recession in the first half of next year."
"A deepening recession in the region will exert a significant drag on the global economy," the bank maintained. "Canada will be negatively impacted through weaker commodity prices, confidence and export growth. Labour markets will also soften as a result." (ERIC FEFERBERG/AFP/Getty Images)

The signs are abundant that the world's largest economy is cooling. Mounting local government debt and slowdowns in everything from industrial production to the housing market has led many to predict softer economic growth in 2012.
"Real estate is a locomotive industry that leads at least 58 other industries," Cai Weimin, who runs a real estate think tank in Shanghai, told NPR. "Doomsday probably won't come true in 2012, but for the Chinese economy, 2012 will be a very tough year. (Aaron tam/AFP/Getty Images)

As Canada's rich-poor divide widens, some experts warn that the concentration of wealth at the top of the income distribution and stagnating wages for everyone else could be a drag on the economy. Though Canada's income gap is not as pronounced as in the U.S., Canadian Centre for Policy Alternatives economist Armine Yalnizyan argues that the growing divide is bad for business all the same.
Mind The Gap: Our examination of Canada's growing income divide
"Real growth in purchasing power has been restricted to a small fraction of Canadian consumers in what is already a small market," she maintained in an op-ed in Canadian Business magazine. "Throttling aggregate demand slows the economy for everyone."
Anne Golden, president and CEO of the Conference Board of Canada, echoes this sentiment.
"Growing inequality distorts consumer patterns," she told The Huffington Post in a recent interview. "Most businesses, except maybe for Porsche [dealerships], rely on rising purchasing power of the many, not the few, to deliver growth and profits." (ADRIAN DENNIS/AFP/Getty Images)